Third Quarter President’s Message

Many of you saw Ken Harney’s syndicated column1 which ominously warned, “For Fannie and Freddie, appraisals are not always necessary.” See the link below. Harney cites quiet policy changes at both government sponsored enterprises allowing transition to “appraisal-free” mortgages. This change is intended to streamline home lending processes and save consumers time and money.

The conventional wisdom seems to be that residential appraisals have now been rendered obsolete by a buoyant market and big data. To paraphrase the bandit in Treasure of the Sierra Madre, they might as well be saying, “appraisals? We don’t need no stinkin’ appraisals!”

Renowned economist and iconoclast, the late J. Kenneth Galbreath famously railed against the term he coined, the “conventional wisdom” of things. He explained how intervening events, not so much ideas, inevitably thwarted such accepted bromides. Conventional wisdom, seen by many as mere prudence, in our context means the stifling conformity of elite opinion.

So, all of a sudden, in the elite opinion of the country’s two biggest enablers of mortgage financing, Freddie Mac and Fannie Mae, appraisals are no longer worth the cost and inconvenience to the almighty consumer.

How soon they forget. Both enterprises are charged with facilitating and expanding the U.S. housing market, and particularly so-called affordable housing. Property values, as confirmed by appraisers in the field, provide the only tangible security for this trillion-dollar industry. It was through no fault of appraisers, but irresponsible underwriting and commoditization of sub-prime rate loans that caused the housing market to collapse, not even a decade ago. But here we go again.

Today, conventional wisdom finds that big data renders the field appraiser redundant. Fannie Mae claims its database of more than 23 million appraisals, together with “proprietary analytics,” is sufficient for reliable value estimates. Of course the database of confirmed sale transactions was harvested from the reports prepared by those very same field appraisers.

Yes, in our smartphone era, Google Maps and Zillow-type services provide leverageable tools, unimaginable even a decade ago. Does this mean the residential appraisal career will disappear like the family doctor making house calls?

But, then, is today’s appraisal report just a regulated commodity – or a professional service requiring highly specialized training, experience, and most importantly, learned judgment?

A seasoned appraiser and ICAP Board member from Peoria, put it best: Valuations are opinions of value and do not lend themselves to a scientific approach. While data is important to the development of the opinion, it is not the only factor. Accurate valuation is a three-legged stool; the opinion of value is only as good as the data, experience, and reasoning used to support it. An AVM [automated valuation model] uses only data and eliminates the other two footings.

Perhaps our regulatory scheme that mandates appraisals for any lending transaction, and blames the appraiser if anything goes amiss, should be more flexible. If a lender feels an appraisal is an unnecessary expense, let her put the onus on the borrower- look to a family’s creditworthiness for collateral, for instance, rather than the property.

Valuers can appear self-serving when insisting on appraisals for every transaction. Perhaps thresholds are appropriate for low loan to value refinances. Again, the underwriting should be based more on the borrower’s ability to pay than the collateral.

As Valuers, we need to raise our profiles as professional advisors to our clients. This may mean being more selective in the work we do. Turbo-tax did not put accountants out of work. They simply pursued higher and better (and more profitable) uses of their time. Eschew the commodity box and charge for your time.

So if the conventional wisdom maintains that appraising is a dying “industry;” question the premise and add the type of extra value to your service that only the appraiser is uniquely qualified to provide.

Q&A with Sandra J. Tropper, FASA, Instructor of “PG204-Personal Property Valuation-The Legal and Regulatory Environment“ The American Society of Appraisers (ASA) is hosting the course: “PG204-Personal Property Valuation-The Legal and Regulatory Environment” at the Massachusetts College of Art and Design (MassArt) in Boston on May 2-5, 2019. This course […]

Q&A with Susan Golashovsky, FASA, instructor of Upcoming Webinar: “Connoisseurs Have Information I Need (and What I Found Out By Asking)” The American Society of Appraisers (ASA) is hosting an online webinar on Feb. 7, 2019, entitled: PP141-WEB – Connoisseurs Have Information I Need (and What I Found Out By Asking). The webinar provides a variety […] […]

Q&A with Branko Deljanin, Gemologist & Instructor Advances in technology have led to the development of synthetically grown diamonds which are virtually indistinguishable from naturally grown diamonds—posing challenges to appraisers. The American Society of Appraisers (ASA) is offering an online webinar/practical workshop on March 28, 2019 to help je […]

All Appraisers Aboard! Marine professionals–both commercial and yacht–and non-marine professionals interested in the marine appraisal profession may want to come aboard the legendary Queen Mary to attend the American Society of Appraisers (ASA) Marine Survey course on March 21-23, 2019. Permanently docked in Long Beach, CA, the RMS Queen Mary is a retired Br […]

The American Society of Appraisers recently held its annual International Appraisers Conference on October 7-10, 2018 in Anaheim, California at the Hilton Anaheim. In keeping the tradition of providing the highest-level of education for appraisal experts, this year’s IAC featured more than 40 sessions of the most comprehensive educational programming availab […]

TweetThe American Society of Appraisers recently held its annual Advanced Business Valuation Conference on October 7-10, 2018 in Anaheim, California at the Hilton-Anaheim. This conference presented the most comprehensive Business Valuation educational programming available, taught by the world’s top Business Valuation professionals. This three-day event offe […]

TweetBy Sharon Reed BUCHAREST, Romania — Jeffrey S. Tarbell, ASA represented the American Society of Appraisers at an International Valuation Conference, entitled: “Business Valuation in a Globalised World” in Bucharest, Romania on September 7, 2018. Hosted by the International Valuation Standards Council (IVSC) and the National Association of Authorised Rom […]

We are pleased to announce the results of ASA’s Rising Stars Award Winners. This award honors the brightest young valuation professionals who have demonstrated success throughout the fiscal year. These six stars were selected by the Rising Stars Committee from over 30 entries nominated by fellow valuation professionals. These individuals will receive free re […]

The Appraisal Institute announced March 25 that it attended several high-profile events throughout the month, which helped the organization enhance its role as the valuation profession’s thought leader.

The Appraisal Institute California Government Relations Committee announced March 24 a legislative campaign to amend the state’s appraisal license law to allow state-licensed appraisers to use valuation standards other than the Uniform Standards of Professional Appraisal Practice when performing appraisals for any purpose other than for federally related tra […]

Delinquency rates for commercial mortgage-backed securities fell for the fourth consecutive month in February to 5.58 percent, analytics firm Trepp reported March 19. Experts said that the declining number of delinquencies and a healthy dose of new issuances indicate a strong year for CMBS.

Foreclosures decreased by 4 percent between January and February, marking the lowest level of foreclosures since August 2006, analytics firm RealtyTrac reported March 19. The report noted the decrease is a sign that the housing market is on track to return to historic norms.

Average fixed mortgage rates moved down during the past week, with the average 30-year fixed mortgage rate continuing to hover below 4 percent, Freddie Mac reported March 19 in its weekly Primary Mortgage Market Survey.

Mortgage lenders are optimistic about the housing market, saying they expect increased mortgage demand and larger profits over the next three months, Fannie Mae reported March 18 in its Mortgage Lender Sentiment Survey. The survey also noted that credit tightening has gradually eased up over the last few months.

Some California farmers are finding that their water has greater value than their land, and so instead of planting crops they are selling their water rights — for as much as $700 per acre foot — to Southern California communities, CBS San Francisco reported March 17.

A bipartisan group of senators, including members of the Senate Banking committee, are fighting against the federal government’s use of Fannie Mae and Freddie Mac’s guarantee fees to cover federal spending, HousingWire reported March 17. The senators said the practice is a “back-door tax” on homeowners.

The Federal Reserve, citing its confidence in the U.S. economy, set the stage March 18 for its first rate hike since 2006 — at the same time it slightly downgraded its economic outlook, USA Today reported. The Fed said growth “had moderated somewhat” due to several factors, including a sluggish housing market.

Fannie Mae and Freddie Mac may need another taxpayer bailout due to increased risks caused by shrinking reserves, according to a report from the Federal Housing Finance Agency Office of Inspector General, Reuters reported March 18. The government-sponsored enterprises received a $187 billion taxpayer bailout in 2008.

Staff

Illinois Coalition of Appraisal Professionals

ICAP is one of the nation’s oldest and largest coalition of professional appraisers, established in 1994 to be a unified voice for Real Estate Appraisers in the State of Illinois.